Market Smelling Inflation?

Daren:
[0:00] All right, Chris, it's Friday. It's my favorite time of the week and I've missed it for two weeks now because I've been traveling and so glad to be back to wrap up the markets and the economy with you today.

Chris:
[0:14] Yeah, I believe the term Dan used was you were on assignment.

Daren:
[0:17] On assignment. That's right. One week it was Southern Cal, the next week it was Alaska and not fully on vacation in various meetings but of course found time to hit up disneyland and some fly fishing in alaska was there so uh always got to make the business trips worth their time absolutely the so lots to talk about um gosh it's hard to talk about the markets without having a political influence right now. We believe that a lot of what the market is queuing off of is very inflationary type of policies from both the left and the right. So in this show, we try to be agnostic. We try to stay in the neutral zone when it comes to politics and try to just cite the facts around the markets. It's getting very challenging to do given everything that's going on, but we'll try to give you a fair, balanced, healthy look at what the market might be telling us based upon what they're hearing from each of the political parties and let you make the decision as to what you think might actually really happen. But we're going to wrap up all of that when we get back and talk all about the markets and the economy.

Music:
[1:46] Music

Daren:
[2:22] All right. So, Chris, you're up first, man. Let's roll.

Chris:
[2:28] Yeah, let's roll. So shout out to our advisor, Russell, who put this awesome chart together in YCharts, I believe is what he was using. Yes. Now, like you said, Daren, it's always a sticky situation, to say the least, when you start talking politics, especially now. It's a very heated topic. But given that we're only a few days away at this point, I think the takeaway from us, or at least from this chart, is stay invested. Now, we've been around the space long enough to know that when Trump got elected, a lot of people got out of the markets. When Biden got elected, a lot of people got out of the markets.

Chris:
[3:20] Not a good move for either one of those situations. Even if you really thought it was the end of the world, it turns out from a market perspective, it was a poor decision to get out. And so, you know, who knows what the future holds, right? Anything can happen. But historically, you know, it's been a smart move to grin and bear it, even if the person wins that you would prefer didn't win, I guess is a nice way to say it. And just in case anybody thinks that this chart is biased, I want to mention that Russell is a staunch libertarian. And I checked with Russell ahead of time to make sure it was okay to blast his political views. But he's an independent guy. And on the libertarian side, and the way I look at that is he's kind of always upset with whoever won because he's never getting his way as a libertarian, right?

Daren:
[4:15] Yeah, that's true. So for what it's worth, right? For what it's worth.

Chris:
[4:29] Yeah. For what it's worth, staying invested is smart. Now we've been talking a lot about how election years tend to be good years. And we started talking about this way back in the spring. This was based on the data historically from a lot of different sources, just saying, And, you know, really, for whatever reason, maybe it's the politicians pump it up or, you know, people get excited one way or the, I don't know what the exact reason is. I'm sure it's like most things. There's many reasons why it happens, but election years tend to be good years. This year has been no exception. And this from Ritholt shows that typically the tensions actually rise right into the election. And then, you know, we get a good end of year rally in the typical election years. Now, this is also since 1950. So same time frame as that chart that we just showed you showing the returns under various regimes. times.

Chris:
[5:28] So, you know, October timeframe tends to be the roughest kind of going right into the election because of the uncertainty. And I think this year, no exception to that, we've had kind of a toss-up really until recently. And even now, you know, even with the betting markets where they are now, if you know anything about betting, it's still basically a toss-up. However, the probabilities have gone up where it could be a one-party dominated situation where if in this case, according to the betting markets, if the Republicans were to sweep all three, we might have one party in power, which that tends to, for obvious reasons, they're able to get their agenda through. And I think that relates back to your point, Daren, about the expectations on inflation seeming to move up here recently with interest rates going up. I think it's a little too hard to tell if it's all related to that, but it is interesting since the expectations in the betting market have flipped really since end of September. We've seen interest rates going up along with those expectations of a one-party possibility.

Daren:
[6:49] Yeah. And so what you see in front I want to use this site called PolyMarkets, probably one of the largest, best well-known betting markets. And Chris and I have said this many times, I can't, I have zero trust for the polls, right? But I have found over the last few years, if you watch the betting markets during the various election cycles, they tend to be more accurate. And the reason I think they're more accurate is for two reasons. One, because people put their money where their mouth is, right? In a poll, there's no consequence for answering the poll one way or the other. When you bet with your money, there's a consequence of it. The second is the betting markets tend to adjust in real time, right? So, you know, you can literally see when one of the candidates says something stupid, like it changes the betting markets in real time. So, which as we all know, we've seen a lot this cycle. So what you have here to Chris's point, you have the probabilities of a Republican sweep up at 48% now, which was not the case until just recently. So we'll see if that adjusts prior to the election in a few weeks. But that's interesting, I think, of note and has an economic impact, right? Because it doesn't matter if the Dems win or

Daren:
[8:16] As long as there's not a full control of all of the power bodies that exist, then there's pushback to kind of keep things status quo. But when there's full control, then you tend to see more things happen. However, I will say it's been my observation that in the past when, and this is anecdotal, but my observation is in the past when we see a full sweep, that you actually see various members of each party that get disenfranchised and actually swing the vote. So even if the Republicans sweep, then there's probably a chunk of Republicans who are on the fence that might not vote for the agenda set by the president. So I like that. I personally believe in the balance of power. I personally believe that that's healthy. There's one thing I often say to clients is that the reason we shouldn't freak out about elections and what's happening is because I only ask that clients hold one truth. And that truth is that the rich want to get richer. If we can all agree that those who have money want to keep their money and make more money,

Daren:
[9:29] Then the politicians can only do things for so long before there's enough pressure coming in at them to make adjustments. And when we look at the markets in particular, it's a very small portion of the populace. It's grown in recent years because of things like Robin Hood, but it's still a very small portion of the populace who's actually invested in the markets. And those individuals invested in the markets, well, guess what? They're the people who tend to have more money. And when that's the case, then they don't want their portfolios to go down either. And what we know about markets is that what makes markets uneasy more than anything is when the There's a lack of clarity when there's volatility because people don't know what's coming next. And if we have politicians that are all over the place and not clear, well, then you tend to get these very volatile markets, which I will show you in the charts today. We are seeing more volatility coming into the markets and expected volatility coming into the markets.

Daren:
[10:36] Anyway, we will carry on, But enough of that. Oh, wait, one more slide.

Chris:
[10:43] I was going to say, don't cut us off yet. So this was also from Ritholtz showing the return since 1950 again. So post-World War II, based on the presidential and congressional control. And as you can see, divided tends to do the best, which I think would be to your point about clarity and expectations. You know, divided means gridlock and gridlock means less changes coming down the pike for all of us to adjust to. So we'll see if that ends up being the case or not.

Chris:
[11:31] So uh interesting stat that i saw from meb favor this week was that there has never been a year where gold and the s&p 500 have both been up 25 or more okay uh so if we ended the year today, that would be the case for the first time uh in history and i think that's an interesting thing to note because one of the kind of conundrums of this market has been how well gold has been doing alongside the S&P also while the dollar is strengthening because usually gold does better when the dollar is weakening. So I think that it'll only be obvious in hindsight, of course, but I think in hindsight, a few years from now, we're going to be looking back and going, oh, it was so obvious what gold was saying about what was happening in the market under the surface. But gold is saying something. And like I said, it will only become clear in hindsight. But to me, that's the biggest kind of head scratcher of 2024.

Chris:
[12:49] This is a great quote, I thought, kind of summing up where we are today in the S&P. And it's from Dan Ferris at Stansberry Research. And let me just read it for those that just listen and can't see the charts. It says, what I am is a perma-long-term investor who knows that your returns are determined by the price you pay. And at this moment, you are paying a lot more than only two other moments in history. Does that mean there's a bear market starting next year? No. It means that you must temper your expectations and you can't just fire money into the S&P 500 fund. And I think the reason why Dan says that is because the S&P is a market cap weighted fund, meaning that the companies with a larger valuation in the market get a higher weighting in the index.

Chris:
[13:43] And what he's referring to there is that on various valuation metrics historically there's only been two times where we've been this high in terms of those valuations and so, you know if you believe like dan does that you make your money on the way in on the price that you pay for an asset uh you know it's it's buyer beware be careful right it's the it's the forest that has not burned in a very long time. That doesn't mean that there's less risk. It means there's more risk. You've got to pick your spots, right?

Chris:
[14:21] Now, the reason I think this was apropos this week is that Goldman hit the market with a very surprising forecast for a lot of folks. And it wasn't surprising to me because Vanguard said the same thing, which is that they expect the S&P, the cap-weighted index, to return around 3% over the next 10 years. So that's an annualized number, meaning that 3% per year. and that is a forward-looking. So as of today, if you bought, they're expecting a 3% annualized return. Now, of course, they have a range and it ranges everywhere from a negative annualized return to a little bit more positive than that. But they have a nuance to it as well, which is that's the cap-weighted S&P.

Chris:
[15:16] They go to pains to say, If you're using other measurements, there's other stocks, other companies in the S&P or in the American market that are not that highly valued. So their forecast is very specific to the cap-weighted S&P. So I just thought that was interesting because it came from Goldman. It's not a firm like GMO, let's say, that's been pretty bearish for a while. And they have their reasons as well, also based on valuations. But this really was kind of a hot topic in the financial world this week.

Daren:
[15:57] So, Chris, I had this just deja vu moment maybe of, I guess it would have been back in 2018, you and I were sitting in the office and we were showing a client all these predictions of the next decade and what the returns will be and they were all about right around this area and uh i think one of the companies have like a six percent return for equities over the next decade and and now you look back and you're like well we've added a few more trillion dollars in debt and it turns out equities did pretty well and it's not what they said it was so i think it's fair to point out even these huge institutions they get it wrong constantly, right? So you have to accept the fact that this is really just someone pontificating about something they don't know with a really big brand behind them.

Chris:
[16:54] That's true. And, and we also have four more years in that 10 year projection. So there's time. Don't say that. Yeah. Yeah. Knock on wood.

Daren:
[17:06] No Debbie Downer.

Chris:
[17:07] Yeah, exactly. Well, this, this is really cool because it's showing the cycles U.S. Stocks have delivered. This is from Bloomberg. U.S. Stocks have delivered double digit gains. And so it shows, Yes, that's true, but there have been periods, and this goes back to 1938, where the market has returned zero or sometimes even, in some cases, less than zero when you factor in the Great Financial Crisis and the Great Depression over 10-year periods. So it does cycle. I think it's really important to remember in all investments, cycles happen. cycles happen. You don't know exactly when it's a lot like predicting the weather. Um, and you can never be absolute about these things, but they're human systems and human systems cycle. They always have, and I, I believe they always will, you know? And so, um, just interesting to, to note that we're at the high, higher point in this cycle, uh, when you look at this and, um.

Chris:
[18:15] Uh, So, you know, and it's a function of valuations. It's also a function of concentration. So this is from Goldman Sachs, and they're showing the weighting, and we've beat this dead horse a million times, but the market cap of the largest stock relative to the 75th percentile. So the concentration in the S&P is the highest ever. That is according to, I don't have his name, he was on MedFavor this week, market historian. And according to him, this is the highest it's ever been, somewhere around like 800 years of history of any one market, if I'm understanding his stats correctly. Now, he also went on to say that doesn't mean there necessarily has to be a crash, right? Because again, there's a lot of stocks out there that are not trading at these high valuations. It's mostly concentrated in just a few. But nonetheless, of note, these cycles happen regularly. We're at a high point in these cycles. So it's be wary of that and know where you're at in the cycle, trying to understand where you're at in the cycle.

Daren:
[19:36] Well, I think if there's any, like, if I had to like summarize the emotional state of the market right now, and I would say the economy, it's like, oh, the feds, it's like almost just accepted now that the feds is going to keep printing money and that the market's going to just keep going up. And I think that in of itself is what makes this market more dangerous than any other fact, because it's those moments when we start to just accept that the market's always going to go up, that I think we're at our highest risk point. I think you made a great point this week when we were meeting with a client, Chris, when you said, you know, the challenge with moments like this is it's kind of like, you know, when you look at like living in the mountains, for example, and if you live in the mountains, when certain areas don't burn, you just start to think that that area is never going to burn. But actually your risk of that area burning has gone up substantially because it hasn't burned in a long time because there's a buildup of fuel, right? And it's kind of similar. Like we've had this massive buildup and consolidation of stocks and where the wealth is in the S&P and this massive complacency that just goes through the whole markets that stocks always go to the moon and they're always going to go up.

Daren:
[20:52] And yet we have to balance that knowledge with the idea like you don't want to be Debbie downer and you don't want to fight against a rising market, but you also want to be thoughtful and smart about how you allocate your assets because the reality is they do come down and history does rhyme, if not repeat.

Daren:
[21:11] And this time will likely be no different. We just don't know when that moment changes.

Chris:
[21:16] Yeah. And full disclosure, I stole that wonderful analogy from David Dredge, who was on The Insightful Investor with Alex Shahidi this week. It's a great podcast. I sent it to you, Daren. I'm sure you listened to it at least once, maybe twice, since I suggested it.

Daren:
[21:34] It's on the list, Chris.

Chris:
[21:37] But anyway, he's a risk manager and a ball trader. So his job is to protect against unseen risk because it's so interesting to hear how someone like that views risk. And the upshot was, hey, if you have heard about it or read about it, it's not a risk that's not priced in. And where true risk comes from is the areas that you're not thinking about, that no one's thinking about. That's where true risk comes from. Because if somebody's thought about it, it's priced in. So think of it that way. I guess it's a little comforting because you can say, well, if I'm worried about this, it's probably not going to happen because it's already priced in. So maybe none of this valuation stuff even matters, right?

Chris:
[22:26] So this is from Charlie Bielo. And he's showing one of those valuation market measurements, which is the S&P's price versus the peak earnings ratio. And, you know, we're up there. Only eclipsed one time in the U.S. Market history, which was the 2000.com. And, of course, that's because a lot of the companies during the dot-com bubble had no earnings. So the the price to earnings ratio just got sky high at that time now on the on the opposite end of that look at 08 where the price to earnings ratio was dirt cheap with less than than double digits got down to 8.7 um you know and coming out of that like had you you know going back to buying at the right time when you go in at the right price basically you bought almost anything and did did, uh, you know, very well over the next decade, uh, till now, um, you know, maybe even longer than a decade, 15 years or so. And, um, so, uh, so these opportunities do present themselves when they present themselves. It doesn't feel like an opportunity. It feels awful. Uh, you know, everybody remembers what the spring of 2009 felt like from a investment perspective, Holy cow.

Chris:
[23:52] Awful. So again, cycles and knowing where you are approximately. And these things can go on for a while. It's not saying, hey, it's going to crash tomorrow or it's even going to crash at all. It's just that there's a cycle to it. And I think expecting, hey, I'm going to get the same decade-long returns looking forward that we would have gotten in 2009, I just think it's unrealistic based on current valuation metrics.

Chris:
[24:25] So this was a very cool chart on homeownership. So homeowners had below 5% mortgage rate on average in Q2 of 2024. And look at these ranges though. The largest cohort at 35% has between a 3% and 4% mortgage rate. The second largest at 21% has less than 3%. So, you know, more than 50% of people who have a mortgage are paying less than 4%. So given that rates are, you know, 6%, 7% now, that's frozen. You know, I heard somebody refer to it as frozen the housing market. I think that's a good way to think of it is absolutely frozen it until those rates come back down.

Chris:
[25:17] Not likely to see a lot of movement there.

Chris:
[25:24] And i think that is shown here by showing the existing home sales year over year change we've saw we've seen a similar drop to what we saw in 08 and it's uh you know the pain in the housing market has just been masked by the fact that the prices have stayed high but you know housing has gone through its own recession on a lot of different metrics and existing home sales being one of them, just showing the severity of it by Charlie Bielo here. But on the flip side of that too, I think also notice that we're coming out of it, right? We've seen that pain March of 23 being the low point, and we've seen a lot of recovery since then. And so there is, I think, a lot of evidence for we've seen the pain in the financial markets, and now you're starting to see a lot of recovery in a lot of the areas and housing being one of them.

Daren:
[26:33] Chris, we lose you, buddy.

Chris:
[26:38] You're on mute. Sorry about that. There we go. Last slide is from Ned Davis Research showing real average household net worth. And it's tracking with the historical average. So let me just read what they say. Equities in real estate account for most of the increase in wealth, each comprising roughly $50 trillion in market value according to the Federal Reserve. Moreover, the increase in real net worth exactly matches the average increase in post-war expansions. So there they've projected out what that average of the last seven post-World War II expansions would have in store for us. And I think what's been most notable about this most recent spike that we've gone through with COVID is how we went way up, we came way down. And now we're just kind of back to the average of the post-war expansion. So if you're feeling a little shell-shocked over really the COVID era, nobody would blame you for that, right? But it may be that the worst is behind us when it comes to that, hopefully. Knock on wood, right?

Daren:
[28:00] We can only hope. We can only hope. All right, let's dive into the markets. I'm going to start in just looking at the charts from the week. I want to start with oil this week. The reason why I want to start with oil is because I think it's one of the most important inputs into whether or not we have continued inflation or a relaxation of inflation. Right. Everything that we consume, what we put in our car, oil is a major, major contributor to the overall economy. And we've been watching oil for a while. I've been talking about how there's this wedge forming in oil and then a breakup or a breakdown likely. I think we can call that a confirmed breakdown now has happened. How deep it goes, I don't know. So what this could be telling us is that this, when oil goes down, usually there's a recessionary, um,

Daren:
[29:05] Something recessionary headed our way. This trend line that has been intact for a very long time is now broken down. Last time we broke this down was during the COVID area, which was right there. There's some talk of the Saudis flooding the market with cheap oil, which some saying that oil will get to $50 a barrel is possible. Hard to know, but we do have a confirmed breakdown in this chart. We're not breaking up at the moment. That doesn't mean that the Israelis might not just go bomb Iran tonight.

Daren:
[29:45] Market's closed. Everything always happens after the market's closed, which by the way, Chris, did you see the news today that the New York Times is looking at extending the market hours and that the market's going to open now 1 30 a.m eastern and close at 11 30 p.m eastern which means the stock market they're talking about i'm not sure if it's for sure yet so don't get me on the rumor please here but it looks like we're going to have a 22 hour market why

Chris:
[30:16] Why not just make it 24 at that point i guess like two hours a day to.

Daren:
[30:22] Set the deck or something it i guess between 11 30 and 1 30 in the morning eastern uh yeah interesting you know i have to say as being someone who's watched the crypto bitcoin markets for a very long time i'm used to now because they never really close it there still is this enjoyment i get or this i guess relief i get when the market closes i can just, okay, the market's closed. I think all financial advisors are going to be like, what do I do with myself now? Because so many financial advisors I know when the market, they don't do anything, but pay attention to the market, do trades, et cetera, when the market's open and then they do the rest of their business after market close hours. And now I'm like, guess what? Market's open all day long. So I wonder if it'll change behavior from financial advisors much.

Chris:
[31:14] Yeah. That's interesting. I don't know how I feel about it yet. Not to form any educated commentary on it, but I think it's kind of cool from a market's perspective. I mean, they definitely have the technology to just keep it open all the time. And you know with all the advancements that we've seen for investors with you know better diversification options more access to investments than ever before platforms great i mean it would only make logical sense that the markets open all the time i don't necessarily think it's great for the average person from a you know behavioral standpoint as a degenerate gambler you know uh, purview on it, like, oh, well, I'm going to be trading 24 hours a day. That's not great. But the fact that the markets would be open and providing liquidity and transparent pricing 24 hours a day, it's pretty cool.

Daren:
[32:11] Yeah. Well, I think the reason they're doing it is because they sort of have to, right? Because there's other threats of other marketplaces getting open for around the clock trading. And I also think that the fact that so many traders now are global, they live all over the world, then it makes more sense from that standpoint, just from serving the customer. And if they don't adjust, then the New York Stock Exchange is just one exchange. It's just a business, runs the risk of losing that trade flow. And that would be ultimately not great. But anyway, change for us, maybe change for clients sort of, but it's definitely something to consider. So oil with a confirmed breakdown. Interesting. If we just look at the structure of this to kind of go in the nerd weeds for a minute, um, this is kind of interesting, Chris, I don't know if you'll find this as cool as I do, but whatever. Um, this is, uh, you have, so this was our trend line, right? We had our breakdown and then we had, it looked like a double bottom,

Daren:
[33:14] Right? And then it tested it. It got rejected with a double top and then now it's down. So, uh that patterns it had a double bottom that went tried to go back up and break resistance and then used a double top to confirm resistance and then we traded back down uh to finish that out what's interesting about this particular double top pattern is typically that you know that length of that pattern something to that tune right so if we look at what we would expect neckline, somewhere in that range is what we would expect to complete that pattern. You could also argue that it's actually this I like to look at the taller end of a double top, right? And use that as your marker. But you could also maybe make an argument that that's how far we go down that it's already completed. I don't know. Again, this is kind of interesting. We had a double bottom, double top, rejection. Now we're here.

Daren:
[34:20] But then you can also look at something kind of forming, which is interesting. And that is this pattern here. it's not very clean but um you can see like this bottoming area here um you could argue that it's kind of starting to form a triple bottom meaning that it would get pressure and go back up um with you're kind of looking at like this like the head and shoulders kind of look starting but But anyway, that's a little bit of a stretch. But anyway, it's interesting. We have a breakdown in oil, which is recessionary, which interestingly enough, we go to the VIX, makes sense when we look at the VIX, because we're starting to see a build in volatility coming into the market, which is just a measure. The VIX is a measurement of how complacent those who trade the S&P 500 futures are looking 30 days out. And here you can see we closed above all these standard moving averages, and it's going up, which suggests that volatility could be on the rise. I would not be concerned that, yes, in fact, volatility is here until we break out of this kind of 23 spot 20 area. Then I would say, okay, that makes sense. Given that in two weeks we've got a presidential election, given that we've seen voter fraud so far, we've seen different parties making different threats about not accepting the other's.

Daren:
[35:49] Winning, whether or not one wins or doesn't win, both sides have gotten big legal teams now in place to try and fight results. I would be shocked if we know right away who wins, unless it's a complete and utter landslide one way or the other. Um, I think the best thing, um, from an agnostic perspective and for the best thing for the country is that one side just absolutely trounces the other side so that there's no question about who won. Uh, that would probably be the best thing for America, irrespective of who that winner is. Um, so we're seeing a little build in VIX and a little build here in the move index, which is the bond markets. And you can see for quite some time, we've had this downtrend in place here. There's a rough trend line on that. And then you can see this breakout. So we're starting to see some volatility build in the bond markets, breaking out of that downtrend. So we're seeing those elements that would suggest to us that volatility might be coming our way. The other thing that makes me,

Chris:
[36:57] If you check out the date when that kind of started spiking, I believe that the Fed cut on the 18th of September, I believe. So like, you know, basically rates, not only the volatility started going up after that, but also rates started going up after that. And uh it's it's kind of it's kind of amazing uh at this point it could just be noise it could be noise but it could also be the market signaling something um you know under the surface it it also happens to correspond with the the probabilities in the betting markets switching over to the possibility of a one-party rule. So lots going on under the hood there.

Daren:
[37:46] Well, and interesting if you look at the yield curve, right? We tend to not hit recessions until the yield curve reinverts and then it does so very aggressively and violently. And now we're technically reinverted. We're back on a normal curve for the yield curve. The fact that that's reinverted, I think you need to take note of because then we're more likely to get into a moment where we actually see a recession. What's interesting though is both sides have been talking about cutting taxes and there was some talk on the Harris campaign of taxing unrealized capital gains. And a lot of people got in after that and

Daren:
[38:27] Um, some of the, that would be a very recessionary type of a moment, right? If they started taxing unrealized gains, cause that means anyone who basically had a gain in a portfolio, whether they sold it or not, would start paying taxes potentially, who knows how the policy would actually get implemented if ever. Um, but that could be, I mean, just a thought of that could be potentially very disastrous for the economy. Um, but then you've got like, on the other hand, like the Trump side and there we're talking about, like, maybe we'll just get rid of the income taxes and we'll start tariffs to pay for government, start thinking about all that stuff. And what that potentially means, that could be very inflationary. So our thesis is that we're operating off the idea that the Fed cut rates too early at this point, and that both sides have different policies that are very stimulative to growth, which doesn't bode well for inflation. And we think the market might be smelling out that, hey, there is some inflation potentially still in the system. And that's these rate move up. Because if you look at when it kind of bottomed out, it was right around when the Fed moved the rates down 50 bips and the market said, yeah, we don't really buy it yet. And rates started going up. This is the three-year rate. Same look for the five-year rate. Same look for the 20-year rate, 30-year rate, six-year rate. Not as much because it's further out. But interestingly enough, if you put a trend line on right here, I mean, we're still in a downtrend.

Daren:
[39:57] So I'm not necessarily saying, hey, I think the market says this is full on inflationary. I think we could get a rate reversal here. Why? Because of what's going on in oil.

Daren:
[40:08] When I look at oil and I say, well, this is the fact that it broke below this long-term trend line is telling me that maybe the rates were just moving in line with a downtrend and there's a little bit of pump there. But really, we're more likely to be headed for a deflationary environment because of what oil is doing.

Daren:
[40:28] Now, that's a little contrary to kind of what the thesis and what people are talking about out there, but I think it's potential. The other thing that makes me pause for a minute is when we look at our S&P 500, this market just continues to rip higher. And I'll tell you what, for whoever inherits the White House here in a few months, they're going to have a real tough go of it. And the reason is, is because unless they can keep stimulating the living snot out of this economy with fiscal stimulus, and they have the political ability to do that, this market is run hard and fast and up. And that ultimately presents a challenge because whoever wins has to continue that or the perception of them as a politician becomes undermined. It's much easier to inherit a stock market here or here or here because you can sing a different song, right? You can improve and say, look what I did for the stock market. Isn't it wonderful? Well, whoever inherits this market, that's going to be interesting. That's going to be difficult, which actually doesn't bode well for our national debt now at $35 trillion, literally in the last few years, went from $35 trillion.

Daren:
[41:51] $19 trillion to $35 trillion. I was literally in New York City right before COVID and looked at the debt calculator up on Times Square. It was $19 trillion, and now we're at $35 trillion. At some point, we can't pay our debt off. It runs away from us. We have to do some kind of debt jubilee. I don't know. I don't think the wheels come off the bus. I think that the game gets changed. Somehow the game gets changed to get us out of this mix. But it's something to pay attention to. And it's going to be difficult for whoever does inherit the economy because they're going to have to keep this thing rolling. And that is because interest rates have been going up. You've been seeing this push down on the ag. Let me just fix this. It's looking a little, there we go. Where the ag started really moving up and now it's come down because rates started going up, but ag has really gone up really strongly in the last couple of years and very quietly so, you know, you definitely don't hear the financial media reporting what the ag is up because it's just slow moving, but you can see it does concern me a little bit from a chart's perspective that we lost support right here.

Daren:
[43:04] So to flip on the other side of the argument, you could say, well, interest rates are going to continue going up because egg broke down. So egg's telling you, I'm not quite there. I think you could still argue that there's buyer support right in this range and we're not quite out of it yet.

Daren:
[43:23] But it is concerning that it's dropping down to there. You could also say it's just a correction and we're going to keep moving higher with the bonds. Rates are going to come down. Deflation is coming into the system. oil's going down and you've got to talk about gold, right? Because if all those things are true and reading what's going on in the economy, you got to say, okay, well, gold's going up and it's had a record year. So show me another year where things happen the way they happened this year. And then there wasn't a recession or some type of event, um, because gold just keeps ripping higher. So that also tells me, Hmm, maybe interest rates are just faking us out a little bit.

Daren:
[44:04] But anyway, I think you could tell a story in a lot of different ways. When we look at the S&P 500, everyone knows I love this chart. This is the FinViz chart. This looks at the heat map, right? This is all the S&P 500 stocks. And when we look at one-year performance, it has just been a bang-up year for the market so far. I mean, just a really great year. We could actually lose a lot of points in the market this year and still end up with a great year. Literally, the market gets to sell off into December and just work its way down. People might feel worse about the year, but the reality, it was still a great year. These big mega cap tech companies are ruling the world and appear to be doing that forever. I think that's the biggest risk in the system, that they appear to be ruling the world. The one-day performance on the S&P, I think, perfectly encapsulates the stock market over the last few years, which you have all these big tech names going up and everything else, either trading sideways or down.

Daren:
[45:08] When we talk about interest rates, right? So a lot of people were talking about after the Fed moved the rate down 50 basis points, they were going to continue to do so. As of right now, the next meeting, which is November 7th, the expected rate to moving rates down doesn't look very likely, right? So chances are we'll hang out where we're at based upon percentages. I don't think the Fed has much room to move the rates down come November, given how the stock market's performing. And if we look at the economic data coming out, you've got new home sales up, you know, above expectations. Uh, you don't have any crazy negatives and core durable goods, durable goods, consumer sentiments up. Uh, I don't see unless they're just wanting to be completely, um,

Daren:
[46:06] Irresponsible than moving rates down further because then they almost be guaranteeing the market overheats. Unemployment claims are, you know, they're below expectation right now. I'm sure if we go back and look at the last ones that we'd see that they're grossly adjusted. The thing to also remember about what's happening, and in this, I think if the Trump administration does win, they're going to have to really contend with, right? Because they're singing this song about small government, get rid of all the bureaucracy, doing like an Argentina style purge of the government. But if you look at all the job gains in the economy and recent history, and those were all coming from government employees, like nobody's hiring, but the government, and that's what's keeping the job market together.

Daren:
[46:54] So if this administration, if Trump administration comes in and says, okay, now we're going to start laying off and not hiring government workers, they're going to have to contend with an economy that's just getting smacked. There will be a transition time, even if they are able to navigate through that effectively, that will create so much insecurity in the markets that I question whether or not they can follow through on those policy statements that they've said on the election trail. That will be interesting to watch as it plays out. But all in all, I think things are strong. The market's strong, not unexpected. If you want to start reading the tea leaves and dicing it, you could argue that, yeah, we have the makings of a more recessionary depreciation environment,

Daren:
[47:43] but with a stock market that just seems resilient and continues to run higher. There's really nothing to argue about that stock market other than just say it's strong and could keep going. You could also argue, though, that it's gone so far so fast that we're due a correction. But we'll see. As always, we'll take it a week at a time. And we'll be back next week to wrap up the markets and talk about the economy. Take care, everyone. Have a great weekend.

Music:
[48:11] Music